Judicial Foreign Policy We Cannot Afford

As American taxpayers shell out hundreds of billions of dollars to bail out U.S. companies, a federal court in New York recently paved the way for significantly increasing some of these firms' financial burdens. Relying on the Alien Tort Statute of 1789, the court ruled this month that certain companies that did business with apartheid South Africa -- including distressed firms such as General Motors and Ford -- can be held liable for South Africa's human rights violations during that period.

The Alien Tort Statute was designed to allow diplomatically sensitive tort cases to be brought in federal court in the hopes of avoiding the friction with foreign governments that could arise if state courts failed to provide a fair hearing. The statute hid in obscurity for almost 200 years before a federal appellate court in New York invoked it in 1980 to allow victims of human rights abuses committed abroad to sue foreign officials in U.S. courts. This holding turned the statute on its head by creating, rather than reducing, friction with other countries. It also spawned a cottage industry of human rights litigation.

At first, these cases were largely symbolic. The foreign plaintiffs had little chance of recovering damages from foreign officials; in effect, victims of human rights abuses used U.S. federal courts to criticize foreign governments. But the character of this litigation changed dramatically during the past decade. Plaintiffs started suing corporations on the theory that the firms "aided and abetted" foreign regimes and should be liable for those regimes' actions. These cases are not merely symbolic -- the U.S. corporations have deep pockets and U.S. bank accounts -- and present enormous opportunities for judicial meddling in foreign relations.

The South African case, brought by class-action attorneys many years after apartheid ended, is a dramatic example. The South African government opposed the litigation on the grounds that it would interfere with the policy embodied by its Truth and Reconciliation Commission, which "deliberately avoided a 'victor's justice' approach to the crimes of apartheid." The Bush administration's State Department opposed the lawsuit, arguing that it "risks potentially serious adverse consequences for significant interests of the United States" by threatening international economic relations as well as political relations with South Africa and other countries whose firms are defendants.

This should have been enough for dismissal. Five years ago, the Supreme Court said in reference to the South Africa litigation that "there is a strong argument that the federal courts should give serious weight to the Executive Branch's view of the case's impact on foreign policy." Yet the New York court, unpersuaded, concluded that allowing the lawsuit to proceed "would not contradict American foreign policy in a manner that would 'seriously interfere with important governmental interests.' " Thus it supplanted its foreign policy views for those of the federal government and refused to respect South Africa's efforts to move its society forward.

More significant, the court ruled that firms were liable for a foreign government's human rights violations, even if they did not engage in the abuses or intend to facilitate them, as long as companies were aware that their business activities would substantially assist the government's illegal practices. This put GM and Ford on the hook for supplying trucks that the South African government used to attack anti-apartheid activists, and IBM for providing computers and software that the government used to register and segregate individuals.

The underlying acts associated with apartheid are abhorrent. But it is crass retroactivity to say that these firms are legally responsible for actions of the South African government. Under the New York court's standard, a great deal of global investment in the developing world would now be subject to U.S. judicial scrutiny.

So what can be done about this sort of litigation, which threatens to transfer billions from U.S. firms doing business abroad to plaintiffs' lawyers and their foreign clients? Lower courts won't resolve an issue they created. The Supreme Court's single ruling on the statute in modern times provides little guidance. The high court declined to review an earlier iteration of the South African case because four justices who owned stock in defendant companies recused themselves, precluding a quorum.

The executive branch is unlikely to press for reversal. President Obama recently nominated Yale Law School Dean Harold Koh to be legal adviser to the State Department, the government office that presents the U.S. view of these cases to federal courts. Koh is an intellectual architect and champion of the post-1980 human rights litigation explosion. He joined a brief in the South Africa litigation arguing for broad aiding-and-abetting liability.

That leaves Congress, which has never hinted that corporations should be liable in these cases. Lawmakers have also given foreign governments, including South Africa's, statutory immunity from cases such as the apartheid litigation. Courts circumvent this immunity when they hold liable secondary actors not directly responsible for the abuses. Much worse, these lawsuits threaten to deepen the economic distress of U.S. and foreign firms by imposing an enormous tax on investment in developing countries at a time the world desperately needs such investment. Judicially made corporate human rights litigation is a luxury we can no longer afford.

Curtis A. Bradley is a professor at Duke Law School. Jack L. Goldsmith, a professor at Harvard Law School, has participated in Alien Tort Statute cases in support of defendants.